Correlation Between Global Core and Global Advantage
Can any of the company-specific risk be diversified away by investing in both Global Core and Global Advantage at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Global Core and Global Advantage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global E Portfolio and Global Advantage Portfolio, you can compare the effects of market volatilities on Global Core and Global Advantage and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Global Core with a short position of Global Advantage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Core and Global Advantage.
Diversification Opportunities for Global Core and Global Advantage
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Global and Global is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Global E Portfolio and Global Advantage Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Advantage Por and Global Core is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Global E Portfolio are associated (or correlated) with Global Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Advantage Por has no effect on the direction of Global Core i.e., Global Core and Global Advantage go up and down completely randomly.
Pair Corralation between Global Core and Global Advantage
Assuming the 90 days horizon Global Core is expected to generate 4.45 times less return on investment than Global Advantage. But when comparing it to its historical volatility, Global E Portfolio is 2.49 times less risky than Global Advantage. It trades about 0.29 of its potential returns per unit of risk. Global Advantage Portfolio is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 1,485 in Global Advantage Portfolio on September 1, 2024 and sell it today you would earn a total of 338.00 from holding Global Advantage Portfolio or generate 22.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global E Portfolio vs. Global Advantage Portfolio
Performance |
| Timeline |
| Global E Portfolio |
| Global Advantage Por |
Global Core and Global Advantage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Core and Global Advantage
The main advantage of trading using opposite Global Core and Global Advantage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Core position performs unexpectedly, Global Advantage can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Global Advantage will offset losses from the drop in Global Advantage's long position.| Global Core vs. Emerging Markets Equity | Global Core vs. Global Fixed Income | Global Core vs. Global Fixed Income | Global Core vs. Global Fixed Income |
| Global Advantage vs. Emerging Markets Equity | Global Advantage vs. Global Fixed Income | Global Advantage vs. Global Fixed Income | Global Advantage vs. Global Fixed Income |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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